UPDATE 5-Boeing forecast assumes little impact from 787 problems

January 30, 2013|Reuters

* Boeing sticks with lithium-ion battery despite issues

* Regulators say they were not alerted

* Boeing tops estimate by 9 cents

* Quarterly revenue rises 14 percent

By Alwyn Scott

NEW YORK, Jan 30 (Reuters) - Boeing Co stood by thetroubled lithium-ion battery technology that this month groundedits new, high-tech 787 Dreamliner and said on Wednesday that thegrounding had no significant impact on its 2013 financialforecast.

It's "business as usual," CEO Jim McNerney said as theChicago company posted market-beating profits for the fourthquarter.

Responding to revelations that the 787 battery has had moreproblems than previously disclosed, Boeing said it will speed upproduction of the jet as planned and that it had not advisedsuppliers to slow down shipments of pieces for the 787, the mostwidely outsourced jet in the company's 97-year history.

"Nothing that we have learned has told us that we have madethe wrong choice on the battery technology," McNerney said on aconference call with analysts and journalists following releaseof fourth quarter results.

"We feel good about the battery technology and its fit forthe airplane. We have just got to get to the root cause of theseincidents and we will take a look at the data as it evolves, butthere is nothing that we have learned that causes us to questionit at this stage."

Boeing has replaced more than 100 787 batteries forcustomers and its own use, according to a person familiar withthe matter, who noted that 787 production started six years ago.

McNerney said replacement was "a matter of routinemaintenance rather than any safety concerns" and not somethingairlines would ordinarily report to regulators.

The Federal Aviation Administration said it did not get anyadvance notice of the battery problems, which occurred overmonths. The National Transportation Safety Board said itreceived information about the replaced batteries early in itsinvestigation.

In contrast, the probe into the cause of two burnt batteriesthis month involves hundreds of experts from Boeing and outsidethe company. But that effort is "highly compartmentalized" and"it's not drawing any critical resources from any other growthprograms we've got," McNerney said.

"Our plan is to continue production of the 787 and tocontinue the development of the wide-body airplanes."

The statements came as Boeing posted a fourth-quarterresults that beat market expectations, thanks in large part toits ability to speed up jet production and keep costs down.

Its shares closed up nearly 1.3 percent at $74.59.

Aviation safety agencies in the United States and Japan areinvestigating what caused lithium-ion batteries to burn on two787 passenger jets earlier this month, prompting the worldwidegrounding.

Boeing has since halted 787 deliveries and analysts haveraised concerns about the cost of the grounding and fixing thebattery problem on about 125 jets that Boeing has built so far.

But Boeing released a forecast for 2013 that included nosignificant impact from the 787.

The company expects to deliver at least 60 Dreamliners in2013, fewer than the 80 jets or more that some analystsexpected, but a figure that implies a four-month delay indelivery, since Boeing is making five 787s a month.

McNerney said Boeing still plans to increase 787 productionto seven a month by mid-year and 10 a month by year-end.

The new production forecast raised some eyebrows. RussellSolomon at Moody's Investors Service was forecasting 100 787deliveries and said Boeing's forecast of more than 60 was"significantly weaker than we had expected."

Earlier on Wednesday, Japan's two biggest airlines said they repeatedly replaced sub-par lithium-ion batteries on theirDreamliners in the months before the two incidents that led tothe 787 groundings.

All Nippon Airways Co Ltd, the biggest 787customer, said it replaced 10 batteries. Japan Airlines Co Ltd also indicated problems with the battery systemreliability long before one caught fire on a JAL 787 at Boston'sLogan Airport on Jan. 7. A second was badly charred and meltedon an ANA domestic flight a few days later, prompting the pilotto make an emergency landing and evacuation.

The two airlines operate 24 of the 50 787s in service.United Airlines is the only U.S. carrier currentlyflying the 787.

McNerney said the replacement rate had been "slightlyhigher" than expected, but added "there's been no incidents thatwe're aware of where a battery has been replaced for any sort ofsafety concerns."

McNerney declined to give any cost estimates for the 787problems or discuss the investigation in any detail. The NTSB,which is leading the investigation in the United States has notyet established a cause for either of the two battery incidents.

NET FALLS, STILL BEATS

Meanwhile, Boeing said net income fell to $978 million, or$1.28 per share, in the fourth quarter, from $1.39 billion, or$1.84, in the year-ago period, when it posted a special taxgain. But it beat analyst expectations of $1.19 a share.